Diversity jurisdiction
From Wikipedia, the free encyclopedia
In United States law, diversity jurisdiction is a concept used in civil procedure to refer to the situation in which a U.S. (federal) district court has subject matter jurisdiction to hear a civil case because the parties are "diverse" in citizenship, which generally indicates that they are citizens of different states (corporate parties, and non-U.S. citizens can also be included). Diversity jurisdiction and federal question jurisdiction (i.e., jurisdiction over issues arising under federal law) constitute the two primary sources of subject matter jurisdiction in U.S. federal courts.
The United States Constitution, in Article III, § 2, gives the U.S. Congress the power to permit federal courts to hear diversity cases through legislation authorizing such jurisdiction. The provision was included because the framers of the Constitution were concerned that when a case is filed in one state, and it involves parties from that state and another state, the state court might be biased toward the party from that state. Congress first exercised that power and granted federal trial district courts diversity jurisdiction in the Judiciary Act of 1789. Diversity jurisdiction is presently codified at .
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[edit] Diversity of parties
Usually, in order for diversity jurisdiction to apply, none of the plaintiffs in a case can be from the same state as any of the defendants (complete diversity). A corporation is treated as a citizen of the state in which it is incorporated and the state in which its principal place of business is located, though a partnership or limited liability company is considered to have the citizenship of all of its constituent partners/members. Thus, a partnership with one partner sharing citizenship with an opposing party will destroy diversity of jurisdiction. Cities and towns (incorporated municipalities) are also treated as citizens of the states in which they are located, but states themselves are not considered citizens for the purpose of diversity. An alien (foreign national) who has been granted the status of U.S. permanent resident is treated as a citizen of the state where the alien resides.
The diversity jurisdiction statute also allows federal courts to hear cases in which:
- Citizens of a U.S. state are parties on one side of the case, with nonresident alien(s) as adverse parties;
- Complete diversity exists as to the U.S. parties, and nonresident aliens are additional parties;
- A foreign state (i.e. country) is the plaintiff, and the defendants are citizens of one or more U.S. states; or
- Under the Class Action Fairness Act of 2005, a class action can usually be brought in a federal court when there is just minimal diversity—i.e., any plaintiff is a citizen of a different state from any defendant. Class actions that do not meet the (not very stringent) requirements of the Class Action Fairness Act must have complete diversity between class representatives (not all class members) and the defendants.
A United States citizen who is domiciled outside the United States is not considered to be a citizen of any U.S. state, and cannot be considered an alien. The presence of such a person as a party completely destroys diversity jurisdiction, except for a class action or mass action in which minimal diversity exists with respect to other parties in the case.
If the case requires the presence of a party who is from the same state as an opposing party, or a party who is a U.S. citizen domiciled outside the country, the case must be dismissed, the absent party being deemed "indispensable". The determination of whether a party is indispensable is made by the court following the guidelines set forth in Rule 19 of the Federal Rules of Civil Procedure.
[edit] Amount in controversy
The United States Congress has placed an additional barrier to diversity jurisdiction, the amount in controversy requirement. This is a minimum amount of money which the parties must be contesting is owed to them. As of mid 2007, under 28 U.S.C. §1332(a), a claim for relief must EXCEED (not equal) the sum or value of $75,000, exclusive of interest and costs (but without considering counterclaims). A plaintiff may add different claims against the same defendant to meet the amount. Two plaintiffs, however, may not join their claims together to MEET the amount, but if one plaintiff meets the amount standing alone, the second plaintiff can piggyback as long as the second plaintiff's claim arises out of the same facts as the main claim. See the article on federal supplemental subject matter jurisdiction here : supplemental jurisdiction. The amount specified has been regularly increased over the past two centuries. Courts will use the "legal certainty" test to decide whether the dispute is over $75,000. Under the "legal certainty" test, the court will accept the pleaded amount unless it is legally certain that the pleading party cannot recover more than $75,000. For example, if the dispute is solely over the breach of a contract by which the defendant had agreed to pay the plaintiff $10,000, a federal court will dismiss the case for lack of subject matter jurisdiction, or remand the case to state court if it arrived via the removal process.
[edit] Removal as distinguished from remand
If a case is originally filed in state court, and the requirements for federal jurisdiction are met (diversity and amount in controversy requirements are met; or case involves a federal question; or supplemental jurisdiction exists), the defendant -- and only the defendant -- may remove the case to federal court. (Removal signifies transfer of forum.) There is no such thing as "removal" to a state court. To remove to a federal court, the defendant must file a notice of removal with both the state court in which the case was filed and the federal court to which it will be transferred (other procedural requirements must be met).
Whether or not diversity of citizenship exists for purposes of federal jurisdiction is determined at the time the case is filed. If, for example, the defendant later moves to the same state as the plaintiff while the action is pending, the federal court will still have jurisdiction. Note, however, that if any defendant is a citizen of the state where the action is first filed, the action cannot be removed to federal court. 28 U.S.C. §1441(b).
If a party (the plaintiff or another defendant) opposes removal, the party may request a remand, asking the federal court to send the case back to the state court. Remands are rarely granted if the diversity and amount in controversy requirements are met, but a remand may be granted if non-diverse parties are brought into the litigation, or if the parties settle some claims between them, leaving an amount in controversy below the jurisdictional amount.
[edit] Law applied
The United States Supreme Court determined in Erie Railroad Co. v. Tompkins (1938) that the law to be applied in a diversity case would be the law of whatever state in which the action was filed. This decision overturned precedents that had held that federal courts could create a general federal common law, instead of applying the law of the forum state. This decision was an interpretation of the word "laws" in 28 USCA 1652, known as the Rules of Decision Act.
The Rules of Decision Act provides that: the laws of the several states, except where the constitution or treaties of the United States or Acts of Congress otherwise require or provide, shall be regarded as rules of decision in civil actions in the courts of the United States, in cases where they apply.
The Court interpreted "laws" to include the states' judicial decisions, or "common law." Thus, Erie is said to stand for the principle that there "is no general federal common law," though this is an overstatement. Federal Courts do create "common law" with respect to federal statutes and regulations.
Because the RDA provides for exceptions and modifications by Congress, it is important to note the effect of the Rules Enabling Act (REA), 28 USCA 2072. The REA delegates the legislative authority to the Supreme Court to create rules of practice and procedure and rules of evidence for Federal Courts. Thus, the distinction between substantive and procedural law that Erie is so famous for is really a function of the REA. The Federal Rules of Civil Procedure (FRCP) and Federal Rules of Evidence (FRE)still govern the "procedural" matters in a diversity action via the Rules Enabling Act, though not through Erie. It is also important to note that the REA at 28 USCA 2072(b) provides that the Rules will not affect the substantive rights of the parties. Thus, the state of original filing may still have a bearing on the "procedural" rules applied if the Federal Rule would "abridge,enlarge, or modify" a substantive right provided for in that state's laws.
